The Howard Corporation is considering expanding sales by $40,000 by selling on c

Question

The Howard Corporation is considering expanding sales by $40,000 by selling on credit. The Corporation's cash sales averaged $200,000 per year for the last few years. Its cost of goods sold was approximately 50% of sales, its operating expenses were 20% of sales, and its income taxes expense averaged 35% of income before taxes. The company predicts that its cost and expense percentages will remain the same, but only 95% of the credit sales will be able to be collected. For the coming year, the company expects cash sales to be $220,000 and credit sales to be $40,000.

Determine the Corporation's expected net income for the coming year.

$42,250

$49,400

$50,700

$52,000

$42,250

$49,400

$50,700

$52,000

Explanation / Answer

Sales 260000 =220000+40000 Cost of goods sold 130000 =260000*50% Gross profit 130000 Operating expenses 54000 =(260000*20%)+(40000*5%) Income before taxes 76000 Income tax 26600 =76000*35% Expected net income 49400 Option B is correct

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